TALLINN - The debate on harmonizing capital-gain taxes in the European Union 's roughly split between new and old members 's took a turn for the worse when a French minister this week proposed to bar the distribution of structural funds to the bloc's newest members.
French Minister of Economy and Finance Nicolas Sarkozy said on Sept. 5 that he planned to propose to EU colleagues that the 10 new members with lower than average tax rates be barred from receiving structural aid funds.
"One can't allow that some countries in Europe say 'we're sufficiently rich enough to lower our taxes' 's to as low as zero in some cases 's but at the same time ask the countries of old Europe to pay structural funds that we could use for our regions," Sarkozy was reported as saying by Agence France Presse.
The issue will be on the agenda of an informal meeting of EU economy and finance ministers in The Hague on Sept. 10 that, among other issues, will consider the European Commission's new proposals on amending the Stability and Growth Pact in favor of growth. (See story on Page 8.)
The low corporate tax rates in several of the 10 countries 's particularly in the Baltics 's has arguably become the biggest bone of contention between members from Western and Eastern Europe.
German Chancellor Gerhard Schroeder and French President Jacques Chirac have repeatedly pledged to harmonize tax rates and to prevent what they have called "fiscal dumping" on the part of new member states.
But Sarkozy was the first to suggest suspending payment of structural funds to countries with low tax rates.
Some old EU members, however, oppose any such harmonization, with the United Kingdom being the staunchest supporter of tax independence.
What's more, outgoing EU Budget Commissioner Michaele Schreyer has said that new members were not funding their tax advantages with EU funds.
Responding to the French minister's statement, Latvian Finance Minister Oskars Spurdzins described the proposal as the "usual pressure" from the EU.
He did, however, have a counterproposal for his French colleague.
"If France proposes this, I could propose that resources from the EU structural funds could not be granted to states where the welfare level is above the EU average," said Spurdzins.
Spurdzins said Latvia has to compete with other EU member states and the best way to do that was with low tax rates for investors. He added that as the poorest EU member state, Latvia needs structural fund resources to raise the people's living standard.
The Latvian minister also noted that Sarkozy's proposal could trigger political disagreements between old EU member states such as Ireland and the United Kingdom.
Baltic finance ministers met in Tallinn on Aug. 26, and said that they would work together to prevent any income tax unification.
"Tax competition must be preserved," Finance Minister Taavi Veskimagi was quoted as saying. "It is the cornerstone of the goal to make the European Union the most competitive region in the world."